APRA Deputy Chair Margaret Cole - Remarks to the Conexus Retirement Conference

Thank you for the opportunity to join you today and to say a few words about APRA’s role and perspectives on the retirement phase of super. 

The introduction of the Retirement Income Covenant three years ago marked a watershed moment in Australia’s superannuation system. It was not simply another piece of legislation for the industry to digest, but a clarion call for trustees to shift their attention to improving retirement outcomes for Australians.

That call was urgently needed. Despite Australia’s aging population, the industry had remained steadfastly focused on the accumulation phase of superannuation. Insufficient attention was being given to support fund members to navigate the complex yet critical decision-making required at the point of retirement. 

But if the need for the industry to do a better job of supporting members was considered urgent then, it has become even more pressing now –as surging numbers of members and assets enter the retirement phase.

According to APRA’s estimates, retirement assets in APRA-regulated funds are tracking towards $3 trillion over the next two decades, up from $550 billion currently. How the industry responds to the challenge of sharply higher numbers of members and assets in the retirement phase of superannuation will be critical to retirement outcomes for millions of Australians. It will be the true test of the purpose and effectiveness of this system.

The call to action

The work trustees are doing now to implement the covenant is foundational to their ability to support members transitioning to retirement on a far larger scale in the future. 

Two years after an APRA and ASIC thematic review identified a lack of urgency by trustees in embracing the intent of the covenant, the industry is making progress. 

In an APRA and ASIC pulse survey published last year, trustees reported progress in areas such as their understanding of their members’ needs in retirement and in the access and availability of retirement-focused information to members.

But progress has been inconsistent across the industry and, as last year’s survey also identified, trustees have fallen short in tracking and measuring the success of their retirement income strategies.

The question remains, is progress happening fast enough across the industry?

APRA and ASIC have undertaken another pulse survey this year to continue monitoring trustees progress in implementing their retirement strategies. The survey findings will provide insights into the pace and extent at which trustees are meeting their obligations under the covenant. We are evaluating the responses now and intend to publish our report later this year. 

As the survey has only recently closed, it is too early to draw definitive conclusions. However, the preliminary data indicates that 9 out 10 trustees rate their progress in implementing the covenant as either “good” or “very good”. Interestingly, not a single trustee rated their progress as “excellent’, which suggests to me, at least, that trustees acknowledge there is still work to do. 

A quick thank you to everyone who took part in the survey. We were encouraged to see strong engagement from industry reflected in the high participation rate and detailed responses. 

Empowering informed decision making

But the issue here isn’t about whether trustees are ticking the right regulatory boxes. 

It is whether trustees, through their strategies and actions, are empowering members to make the most of their super through informed financial decisions at the point of retirement and during their retired years. 

That confidence in decision making comes with having access to easy-to-understand information about the options available to them, guidance on the retirement planning process, and the availability of suitable product and service offerings to meet their needs. 

Do most members approaching retirement have that confidence today? The answer would have to be a resounding “no”. 

Members who make decisions absent support or information may not necessarily be acting in their own best financial interests. For example, a significant share of members draw down a lump sump from their super in part or in full at the point of retirement. While there can be good reasons for making this decision, say to pay off a mortgage, and each individual’s circumstances are unique, there is also the potential risk of missing out on the compounding and tax advantages of keeping funds in the superannuation system in retirement. 

Increased transparency in retirement

Increased transparency of the retirement phase of super will support better outcomes for members.

APRA is currently working with Treasury to develop a retirement reporting framework which will provide transparency on the products and services available to members in the retirement phase and how trustees are evolving their offerings to need the retirement needs of their members. 

The reporting framework’s proposed indicators and metrics were released for consultation by Treasury last week together with a second consultation paper on best practice principles for superannuation retirement income solutions.

As set out by Treasury, the reporting framework will cover funds’ product offerings, member outcomes and cohorting practices, capturing information in areas such as drawdown options, the take up of retirement products and the provision or referral of advice.

The framework data collection will be published annually by APRA from 2028.

APRA is improving transparency in retirement product performance data too.

In June this year, APRA’s published data on retirement-phase products for the first time. The data, which captures performance data for 600 multi-sector investment options, enhances transparency of investment returns, fees and costs and investment strategies at a product level. 

As well as shining a light on the performance of individual products, we expect access to more detailed retirement product information will help foster greater competition and innovation among trustees.

We intend to provide further insights on retirement product data over time, including in next year’s Comprehensive Product Performance Package.

Beyond the covenant

A substantially bigger retirement asset pool and a sharp increase in numbers of retired fund members will have implications well beyond the Retirement Income Covenant for the superannuation industry. Trustees must be thinking about the cyber, operational and investment governance risks that a substantially larger retirement-phase system represent.

Except in special circumstances, members cannot access their super while it is in the accumulation phase. That’s not the case in retirement. This represents another avenue for members to be at risk from scams, fraud and cyberattacks, at a time of life when many may be more vulnerable to such activity. Maintaining information security and multi-factor authentication for members in this cohort has its own set of challenges, particularly in cases where some elderly members may not be accustomed to digital technology.

From an investment governance perspective, more members in the retirement phase puts an onus on trustees to carefully consider liquidity risks and the investment performance of retirement products. 

There are also the operational risks of managing a large and growing pool of retirement funds to consider, in terms of maintaining account-based pension payment systems and outflows, for example, and managing any material service providers who may be supporting these critical operations. 

Conclusion

In closing, the industry is telling us it has heard the clarion call for action on retirement outcomes, although some trustees may have heard it more clearly and with more responsiveness than others.

Despite the progress to date, a substantial gap remains between where the industry is today and where it needs to be to empower members to feel confident in making the critical financial decisions at the point of retirement.

The industry will need to be extremely well positioned to support retirement outcomes at scale and to manage the risks arising from a vastly increased retirement asset pool. Trustees should prepare now for the challenges of tomorrow.

Thank you.